Stepping Out of the Box – One Bank assists with Inventory Finance

BNP Paribas, like many Global and Regional banks, offers solutions to support a company’s receivables and payables and a portal or online platform to manage the operational processes and facilitate communication across the buyer and supplier network. What makes their platform, called Connexis, unique is that BNP Paribas has an Inventory Management solution that ties into two wholly-owned subsidiaries, UTEXAM LOGISTICS and UTEXAM Solutions.

Based in Dublin, Utexam buys, holds and sells inventories for BNP Paribas’ customers needing customized payable and inventory solutions to improve their working capital position. What makes it different from other bank lending products is that Utexam owns your inventory until it is required in production. Utexam allows delaying recognition of inventory to free up cash trapped in the working capital cycle.

This provides the Bank an entree to new Relationships that they may not have with just traditional trade products.

How does it work?

The Bank intermediates between a supplier and a purchaser of inventory. The Bank’s client wishes to defer the purchase of the raw material until required for use in its production process. The Bank would propose its “Just in Time” (“JIT”) structure. Under the JIT, the BNP PARIBAS SCF subsidiary (UTEXAM LOGISTICS Limited or “ULL”) would purchase the raw materials directly from the suppliers and hold this inventory until it is required by the purchase.

Example

An example of JIT structure is a malt producer: ULL buys barley from suppliers (farmers), pays the suppliers and holds the inventory of barley for between 3 and 12 months. When the final buyer, the Bank’ s client, requires the barley for use in its production, to make malt for beer productions, the client buys the barley from ULL.

On the Outbound or Sales side, under the Pre-Receivable Structure (PRS), UTEXAM buys the inventory of finished goods on a non recourse basis from the supplier the

Bank’s client and holds them until required by the ultimate purchaser.

Where’s the Value Proposition?

BNP Paribas has identified an opportunity to place itself between the trading parties. By taking items off the Balance sheet of both the suppliers and the Buyer, it is able to provide a valued added service. The working capital benefits have been described as being significant.

It purchases goods from suppliers and stores them in a Utexam warehouse. It pays the supplier at the date of invoice issue and delivers JIT to buyers, billing them at the expiry of the contractual obligation. The physical handling of goods is not managed directly by Utexam personnel, but by more expert logistic providers such as DHL, and FedEx. These agents ensure the correct management warehousing and handling for the end client.

We will be looking at this model in more detail in an upcoming White Paper.

Our Experts

David is Chief of Strategy for The Interface Financial Group and a contributing author to Spend Matters. Prior to that, he ran a global research and advisory practice centered on helping banks, vendors and corporations with trade services, trade credit and financial supply chain matters. His formal education includes an Information Systems and Economics degree from Carnegie-Mellon University, an MBA from Purdue, and a Chartered Financial Analyst designation.

The closest thing to a household name in procurement and supply chain, Jason has led the charge as an advocate, futurist and evangelist since the 1990s. Initially at FreeMarkets and then an adviser to Ariba and other firms, Jason branched out on his own to establish the Spend Matters brand (parent company: Azul Partners), which emerged to become the largest news and information portal covering the procurement and supply chain sector. Jason divides his time between research, speaking, corporate finance advisory and mentoring dozens of firms and procurement organizations in the industry.